Indonesia's economy to grow by 3 percent: Kwik

Indonesia's economy to grow by 3 percent: Kwik

SINGAPORE (Dow Jones): Indonesia's economy will grow by 3 percent next year and strengthen further by 5 percent to 6 percent in 2001, Coordinating Minister for the Economy Kwik Kian Gie said Monday.

Kwik's latest update on the economy, in a speech scheduled to be delivered to the Singapore Chinese Chamber of Commerce and Industry at 0700 GMT, marks the government's most positive forecast to-date.

Any prediction of future economic activities is risky, we are hopeful that economic growth can reach 3 percent next year, with a return to a growth rate of 5 percent to 6 percent the year after," he said.

He noted that signs of a strong recovery are emerging, as particularly evidenced in the car and retail sales figures.

Car sales have rebounded steadily since the peaceful passing of the country's parliamentary election in June.

He said strong retail sales and the 15 percent rise in exports between August to October, compared with a year ago, offers cause for optimism.

However, damping the country's economic growth is the costly bank recapitalization program.

Kwik said the fiscal burden of the financial sector restructuring weighs heavily on the government budget.

Interest payments to service government bonds issued to recapitalize weak banks will amount to 4 percent of Indonesia's gross domestic product next year and absorb more than 10 percent of the central government's budget in the next fiscal year, he said.

Under the recapitalization program, the government plans to issue a total of over 350 trillion rupiah (US$46 billion) worth of bonds to recapitalize both state and private banks.

While private banks' recapitalization is on track, there are repeated delays in recapitalizing the four state banks.

So far, only Bank Mandiri has received some portion of the government bonds while the other three haven't been recapitalized at all.

"Full recapitalization of the state banks will be accomplished by the middle of next year to be followed by majority divestment of key state banks," Kwik said.

Key to minimizing this financial burden, Kwik noted, is the acceleration of the privatization of state-owned enterprises and recoveries of assets acquired by the Indonesian Bank Restructuring Agency.

Kwik said the government will divest majority stakes in state telecommunication companies next year.

"Next year, we hope to divest majority ownership in our state telecommunication firms," he said, without providing further details.

The previous government already sold a 9.6 percent stake in domestic phone operator PT Telekomunikasi Indonesia in April to international institutional investors, bringing in about $404 million.

The government also sought to sell a stake in international phone operator PT International Satellite Corp. though similar avenues, but failed to drum up enough interest at the right price.

This is the first time the government has expressed an interest in selling majority stakes in both companies, both of which are major blue chips listed in Jakarta and in New York.

Other assets tagged for sales are the shares of Bank Central Asia, formerly the largest private bank in the country, and 30 percent of PT Astra International.

The government plans to list BCA's shares on the Jakarta stock exchange early next year, while Astra's stake will be sold through a public tendering in the coming weeks.